Many of the 4 million refugees from Ukraine brought part of their savings to Europe in cash. Until now, banks have been turning down their national currency.
Shops and restaurants were still shut on the frosty Berlin morning Lana Bensch waited to meet a stranger. She had 9000 hryvnias ($306, €280) in her pocket. She scanned the street, looking for the man who would swap the Ukrainian currency into dollars. Yellow and blue flags embellished most of the grey house fronts around her.
Bensch recalls the moment she exchanged money on the black market. "I felt uncomfortable, like I was thrown into a time machine back to the 1930s," she told DW.
Bensch, a Ukrainian who moved to the German capital 20 years ago, is putting up two refugee families from her home country. Like many of the 4 million people who have fled Ukraine, they brought some of their savings to Berlin in hryvnia banknotes, the local Ukrainian currency. For the time being, most EU banks are not willing to convert hryvnias into local cash. While EU officials have been debating solutions for the past month, people like Bensch have had to turn to black market exchanges.
Why European banks stopped swapping Ukrainian currency
Since the start of the war, the National Bank of Ukraine has suspended the exchange of hryvnias into foreign cash to protect the country's foreign exchange reserves. This has limited European banks' ability to convert the currency into dollars or euros. Moreover, swapping hryvnias means risking big financial losses.
"It's the currency of a country that is fighting for its survival. We don't know what will happen. If Ukraine loses, the currency will be worth nothing," Paweł Tokarski, a senior associate at the German Institute for International and Security Affairs, told DW.
Combined, these factors have made exchanging money through official routes close to impossible. "When I went to an exchange office, they already had a sign at the door saying they don't accept hryvnias," Bensch said.
European Commission copies the Polish approach
With financial institutions reluctant to take the risk of trading a currency that could become worthless, the issue of Ukrainian cash is crying out for a European solution.
"It's really about getting money to refugees. It's a governmental more than a banking issue,” Andrew Kenningham, chief Europe economist at Capital Economics, told DW.
One and a half months after the start of Russia's invasion of Ukraine, the European Commission has now suggested that member states set up a scheme that lets every refugee exchange up to 10,000 hryvnias ($339, €310) free of charge at an official rate set by the Ukrainian central bank. The proposal mirrors an initiative set up by Poland last month.
According to the scheme, local banks would pass the Ukrainian currency to the central banks of the member states at a fixed exchange rate and get their money back in the local currency.
No European solution for a European problem
What the proposal doesn't mention, however, is who will bear the financial risk of trading the volatile currency. According to Tokarski, the brunt will fall on individual member states: "That means the states who are taking in the most refugees will also be carrying the most risk."
The Commission's proposal snubs various other solutions put forward by the European Central Bank (ECB) last week, which represented a more concerted effort.
The preferred choise of the ECB would be to act as a fiscal agent for the EU, while the EU — either through its common budget or through the pockets of member states — would support the currency conversion by providing a guarantee to cover potential losses.
Under the joint solution, the risks of the scheme would be shared equally among EU countries. The counterproposal by the Commission, on the other hand, is less a European fix than a recommendation for uniform action by member states. "It isn't a solidaric solution," says Tokarski. "It's a placebo."
EU finance ministers will be discussing the proposal during their meeting in Luxembourg at the beginning of this week. But the decision to implement the proposal will ultimately be up to each member state individually.
Meanwhile, many of the 4 million refugees in Europe are waiting for a quick solution. "These people depend on every single euro they can get for their cash," said Bensch.
Author: Marie Sina
Edited by: Ashutosh Pandey
First published: April 4, 2022
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